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Sandfire Resources Ltd (SFR) $6.52

UPDATED 22/02/2023 09:22

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Copper and gold miner SFR has already surged by +19.85% in 2023, a very impressive performance when we consider the ASX200 is only up +4.2% year-to-date. The $3bn WA-based miner has enjoyed some major tailwinds over the last 6 months including a +38% bounce by copper, China dropping its COVID Zero Policy, and BHP’s whopping $9.6bn bid for local competitor OZ Minerals (OZL).

At this stage, we still hold a 3% exposure to SFR in the Flagship Growth Portfolio (+ a 4.68% in our Emerging Companies Portfolio) after trimming our position in December & January, a great example of how MM often likes to scale both into and out of positions i.e. we bought into SFR in both October & November as the copper price and backdrop for the commodity price improved. Our decision now revolves around whether we ride this bullish global growth position for the long term or do we consider taking profit into further strength as the fears of a recession through 2024 manifest themselves – at this stage, we are comfortable staying long and monitoring Chinese demand for the industrial metal.

As optimism surrounding the Chinese economy improves, almost weekly, copper looks set to initially rally another ~5% higher.
Similarly our short-term target for SFR is now ~$7, or +6-8% higher which could surprise more on the upside following BHP’s bid for OZL.

Fund managers like to allocate certain money to different market sectors/themes such as banking, insurance, and iron ore. The issue locally with regards to the copper space is the previous goliath in the room, OZ Minerals (OZL) is in the process of being gobbled up by BHP which leaves SFR as the primary company for Australian investors to gain exposure to the industrial metal hence we can see valuation surprises on the upside during periods of strength for the global economy and Copper – the chart below illustrates how since late 2022 SFR has already been outperforming the copper price.

China and central banks are the keys to copper through 2023, if the latter tighten too aggressively sending western economies into a meaningful recession “Dr. Copper” is likely to suffer a decent correction – a key backdrop we are monitoring for obvious reasons.

SFR

MM remains long and bullish SFR

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